PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1995

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission file number 33-20083

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

in respect of

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
------------------------------------------------------
(Exact name of Registrant as specified in its charter)

New Jersey 22-1211670
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

751 Broad Street, Newark, New Jersey 07102-2992
---------------------------------------------------
(Address of principal executive offices) (Zip Code)

(201) 802-6000
----------------------------------------------------
(Registrant's Telephone Number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---

THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)

INDEX
Item Page
No. No.
- ----- ----
Cover Page -

Index 2

PART I

1. Business 3

2. Properties 4

3. Legal Proceedings 5

4. Submission of Matters to a Vote of Security Holders 5

PART II

5. Market for the Registrant's Interests and Related
Security Holder Matters 6

6. Selected Financial Data 6

7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7

8. Financial Statements and Supplementary Data 16

9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16

PART III

10. Directors and Executive Officers of The Prudential 17

11. Executive Compensation 21

12. Security Ownership of Certain Beneficial Owners and Management 21

13. Certain Relationships and Related Transactions 22

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23

Exhibit Index 23

Signatures 26

2

PART I

ITEM 1. BUSINESS

The Prudential Variable Contract Real Property Account (the "Real Property
Account"), the Registrant, was established on November 20, 1986 by The
Prudential Insurance Company of America ("The Prudential"), as a separate
investment account, pursuant to New Jersey law. The Real Property Account was
established to provide a real estate investment option offered in connection
with the funding of benefits under certain variable life insurance and variable
annuity contracts (the "Contracts") issued by The Prudential.

The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership, a
general partnership organized under New Jersey law on April 29, 1988, was formed
through agreement among The Prudential, Pruco Life Insurance Company, and Pruco
Life Insurance Company of New Jersey, to provide a means for assets allocated to
the real property option under certain variable life insurance and variable
annuity contracts issued by the respective companies to be invested in a
commingled pool.

The Partnership has an investment policy of investing at least 65% of its assets
in direct ownership interests in income-producing real estate and participating
mortgage loans. The largest portion of these real estate investments will be
direct ownership interests in income-producing real estate, such as office
buildings, agricultural land, shopping centers, hotels, apartments, or
industrial properties. From 10% to 15% of the Partnership's assets generally
will be invested in short-term or intermediate-term marketable debt instruments.
The remainder of the Partnership's assets may be invested in other types of real
estate-related investments, including conventional, non-participating mortgage
loans.

The Partnership's investments will be maintained so as to meet the
diversification requirements set forth in Treasury Regulations issued pursuant
to Section 817(h) of the Internal Revenue Code relating to the investments of
variable life insurance and variable annuity separate accounts.

For information regarding the Partnership's investments, operations, and other
significant events, see Item 2, Properties, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.

3

ITEM 2. PROPERTIES

The Partnership owns the following properties.

WAREHOUSE FACILITY IN AZUSA, CALIFORNIA
This facility consists of three one-story warehouse buildings in Azusa,
California, approximately 20 miles east of downtown Los Angeles. The buildings
were constructed in 1986. They contain approximately 432,000 rentable square
feet which were 100% leased to five tenants at December 31, 1995.

OFFICE FACILITY IN LISLE, ILLINOIS
The property is a four-story office building on 5.6 acres of land. It was
constructed in 1985 and contains approximately 102,000 square feet of leasable
space. R.R. Donnelley & Sons Company currently leases the entire building under
a renewable lease expiring in 1997. The facility is located at 750 Warrenville
Road in the Corporetum Office Park in Lisle, Illinois. Corporetum Office Park
is a 75 acre planned office development located 25 miles west of downtown
Chicago.

APARTMENT COMPLEX IN ATLANTA, GEORGIA
Brookwood Valley Apartments is a garden apartment complex located approximately
3 miles north of downtown Atlanta. It consists of eight three-story buildings
containing a total of 240 units. Construction of the 7.1 acre site was
completed in 1987. At December 31, 1995 the property was 97% occupied.

WAREHOUSE FACILITY IN POMONA, CALIFORNIA
The Partnership owns a leasehold estate in six industrial buildings on
approximately 28 acres in Pomona, California. The site is approximately 30
miles east of downtown Los Angeles. The buildings were constructed between 1982
and 1984 and contain approximately 531,000 square feet of leasable space. The
property was 100% occupied by seven tenants at December 31, 1995.

Land under the leasehold estate was capitalized upon the assignment of a ground
lease from the previous owner. The lease term extends until November 2078 with
no renewal options. The annual ground lease payments are $250,000 through
November 1994, and, for each ten year increment thereafter, are subject to
increase by 50% of the increase in the Consumer Price Index during the previous
period. For 1995, the annual ground lease payment increased by $126,450 to
$376,450. The ground lease agreement contains a purchase option from November
1994 to November 1997 at a fixed price of $4,000,000.

SHOPPING CENTER IN ROSWELL, GEORGIA
King's Market shopping center was constructed in 1988. It is located
approximately 22 miles north of downtown Atlanta on a 30 acre site. It contains
approximately 296,584 square feet of rentable space. At December 31, 1995 it
was 99% occupied by 32 tenants.

OFFICE FACILITY IN MORRISTOWN, NEW JERSEY
This four-story suburban office building was constructed in 1981 and contains
85,000 rentable square feet. It is located on a 5.1 acre site, approximately 30
miles west of New York City. At December 31, 1995 it was 95% leased to 12
tenants.

WAREHOUSE FACILITY IN BOLINGBROOK, ILLINOIS
This single-story warehouse was completed in 1989. It contains 224,640 rentable
square feet. It is located approximately 20 miles southwest of downtown
Chicago. The entire facility is leased to the Gillette Company under a lease
expiring in October, 2000.

4

APARTMENT COMPLEX IN FARMINGTON HILLS, MICHIGAN
Indian Creek Apartments consists of fifteen two-story buildings containing 156
two-bedroom and 40 one- bedroom units. It was constructed in 1988 and is
located approximately 20 miles northwest of Detroit. At December 31, 1995, the
property was 98% occupied.

OFFICE PARK IN FLINT, MICHIGAN
This investment consists of twelve single-story buildings located in an office
park in Flint, Michigan. The property contains 113,393 rentable square feet.
It is currently 92% occupied by 52 tenants.

The property was obtained by the Partnership on July 1, 1994 through foreclosure
on the mortgage loan made to Oak Creek Associates. The Partnership took title
to the property at the end of the redemption period on January 3, 1995. During
this period, the Partnership received all income generated by the property.

WAREHOUSE FACILITIES IN JACKSONVILLE, FLORIDA
The Partnership owns a 50% interest in four single-story warehouse/distribution
buildings located in Jacksonville, Fl. The remaining 50% is owned by The
Prudential and one of its subsidiaries. The buildings contain approximately
502,000 rentable square feet and were 100% occupied at December 31, 1995.

APARTMENT COMPLEX IN RALEIGH, NORTH CAROLINA
Dunhill Trace consists of fourteen two and three story apartment buildings,
containing a total of 250 units. It was acquired upon completion of
construction in June, 1995. The property, located on a 16.2 acre site in
northwest, downtown Raleigh, North Carolina, was 95% occupied at December 31,
1995

OFFICE FACILITY IN NASHVILLE, TENNESSEE
Westpark is a 97,000 square foot office center located in Brentwood, Tennessee,
a suburb of Nashville. The property was constructed in 1982. The partnership
purchased this property in October 1995. At December 31, 1995 the building was
98.6% leased.

OFFICE FACILITY IN OAKBROOK TERRACE, ILLINOIS
Oakbrook Terrace Corporate Center is a 123,000 square foot building located in
in a western suburb of Chicago, Illinois. The Partnership purchased this
property in December 1995. At December 31, 1995 the property was 99.5% leased.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Contract owners participating in the Real Property Account have no voting rights
with respect to the Real Property Account.

5

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER
MATTERS

Owners of the Contracts may participate by allocating all or part of the net
premiums or purchase payments to the Real Property Account. Contract values
will vary with the performance of the Real Property Account's investments
through the Partnership. Participating interests in the Real Property Account
are not traded in any public market, thus a discussion of market information is
not relevant.

As of March 1, 1996, there were approximately 64,601 Contract owners of record
investing in the Real Property Account.

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------

RESULTS OF OPERATIONS:

Net Investment Income $ 6,200,851 $ 5,252,476 $ 4,906,836 $ 4,396,240 $ 4,826,006
Net Gain/(Loss) on Investment
in Partnership $ 314,267 $ 634,661 $ (935,754) $(6,443,108) $(4,589,140)
----------- ----------- ----------- ----------- -----------
Net Increase/(Decrease) in Net Assets
Resulting From Operations $ 6,515,118 $ 5,887,137 $ 3,971,082 $(2,046,868) $ 236,866
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

Financial Position:

Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------

Total Assets $86,101,883 $79,136,103 $75,841,656 $71,488,007 $73,151,520

6

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

All of the assets of The Prudential Variable Contract Real Property Account (the
"Real Property Account") are invested in The Prudential Variable Contract Real
Property Partnership (the "Partnership"). Correspondingly, the liquidity,
capital resources and results of operations for the Real Property Account are
contingent upon those of the Partnership. Therefore, all of management's
discussion of these items is at the Partnership level. The partners in the
Partnership are The Prudential Insurance Company of American, Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey.

(a) Liquidity and Capital Resources

At December 31, 1995, the Partnership's liquid assets consisting of cash and
cash equivalents and marketable securities totaled $24,755,420. This is a
decrease of $24,162,016 from liquid assets at December 31, 1994 of $48,917,436.
The decrease is due primarily to the acquisition of an apartment complex at a
total cost of $15,758,700 and two office centers at a total cost of $21,015,643
as discussed below. This was partially offset by cash received from operations
of the Partnership's properties and interest income received from short-term
investments.

The Partnership has established a $10 million annually renewable revolving
line of credit with First Fidelity Bank National Association to be drawn upon
as needed for potential liquidity needs. The line of credit had never been
drawn upon. Management did not anticipate any future needs for this credit
facility and decided to terminate the line of credit as of October 31, 1995.
The Prudential has committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the
Partnership under this commitment are utilized for property acquisitions and
returned to The Prudential on an ongoing basis from Contract owners' net
contributions. The amount of the commitment is reduced by $10 million for
everY $100 million in current value net assets of the Partnership. The amount
available for future investments is approximately $52.2 million as of
December 31, 1995.

The Partnership will ordinarily invest 10-15% of its assets in cash and short-
term obligations to maintain liquidity. However, its investment policy allows up
to 30% investment in cash and short-term obligations. At December 31, 1995,
12.6% of the Partnership's assets consisted of cash and cash equivalents and
marketable securities.

During 1995, the partners withdrew $3.0 million. Withdrawals may be made during
1996 based upon the percentage of assets invested in short-term obligations and
taking into consideration anticipated cash needs of the Partnership including
potential property acquisitions and dispositions and capital expenditures. At
December 31, 1995, and currently, the Partnership has adequate liquidity.
Management anticipates that ongoing cash flow from operations will satisfy the
Partnership's needs over the next twelve months and the foreseeable future.

The Partnership acquired properties totaling $36,774,343 in 1995. The properties
acquired were an apartment complex in Raleigh, NC on June 30, 1995 at a total
cost of $15,758,700, an office building in Nashville, TN on October 4, 1995 for
$8,385,450 and an office center in Oakbrook Terrace, IL on December 28, 1995 for
$12,630,193. These acquisitions were funded entirely by cash held by the
Partnership.

During 1995 the Partnership expended $1,050,197 in capital expenditures, of
which approximately $831,200 were for tenant alterations and leasing
commissions. Approximately $327,000 in tenant

7

improvements and leasing commissions was spent at the Azusa, CA warehouse
related to the lease signed by Best Buy. This is the final installment of such
costs related to this tenant. At the Morristown, N.J. office center
approximately $193,000 was expended, primarily related to the lease signed by
Kodak in the first quarter of 1995. Of the $83,000 that was spent at the Pomona,
CA warehouse, approximately $60,000 related to an expansion by Ashley Furniture
and $23,000 related to a new tenant, Pac Rosa Enterprises. At the Roswell, GA
shopping center these tenant improvements and leasing commissions totaled
$78,000 of which approximately $66,000 was attributable to leases signed by
Capezio's ($49,000) and Accentrics ($17,000). Approximately $104,000 was
expended at the Flint, MI office property primarily related to an expansion for
Olsten Kimberly ($66,500) and the lease signed for Combs (37,500). Approximately
$46,200 was expended for tenant improvements at the Nashville office center.

Other major capital expenditures in 1995 included approximately $62,300 for
access gates at the Atlanta, GA apartments, and $32,530 for floor repairs and
sewer repair at the Bolingbrook, IL warehouse. At the Morristown Office Center,
approximately $37,000 was spent for HVAC upgrades, a new transformer and fire
sprinklers. The Farmington Hills, MI apartments spent approximately $35,000 for
an irrigation system upgrade and installation of new carpets and linoleum.
Approximately $38,000 in costs related to the foreclosure of the Flint property
in 1994 were paid in 1995.

Projected capital expenditures for 1996 total approximately $1,811,000. Of this,
approximately $1,549,000 consists of leasing commission and tenant alterations.
The largest of these is $352,000 which is budgeted for the Morristown Office
Center. The property expects to pay approximately $120,000 in costs associated
with the Spectrum Financial expansion and projections include leasing the
remaining vacancies at the property. At the Lisle, IL office building the
Partnership projects leasing commissions of $324,000 resulting from efforts to
renew the tenant prior to the November, 1997 expiration of its lease. In
addition, tenant improvements and commissions are projected at $161,966 for the
Pomona warehouse, $185,000 at the Azusa warehouse, $207,000 at the Roswell
shopping center, $140,000 at the Flint office park and $66,000 at the Unit
Distribution warehouses. The Partnership expects to expend another approximately
$47,000 on smaller leasing commissions on other various properties. Except for
the Spectrum Financial lease, all of these projected expenditures relate to
prospective leases. The actual amount of such expenditures will depend on the
number of new leases signed, the needs of the particular tenants and the timing
of lease executions.

Other major capital projects planned for 1996 include $63,000 for fencing,
entrance gates and upgrades to the exercise room at the Atlanta apartments:
$90,000 for the installation of separate water meters at the Pomona warehouse:
$35,000 for window replacements and a boiler study at Morristown; $27,000 for a
landscaping upgrade, new signage and carport roof replacement at Farmington
Hills and $38,000 to replace exterior entrance doors and landscaping upgrades at
the Flint property. Approximately $75,000 was budgeted for smaller projects
among the various properties.

The Partnership intends to exercise its option to purchase the land on which the
Pomona warehouse is located for $4,000,000. The Partnership will exercise the
option prior to its expiration in November, 1997.

The Partnership has entered into a commitment to sell the warehouse located in
Azusa, California at an estimated sales price of $15,250,000. This transaction
is expected to be consummated in April, 1996. In addition, the Partnership has
entered into negotiations to sell the office park in Flint for an estimated
$6,300,000 in the second quarter of 1996. The proceeds of both sales may be
invested at a later date if suitable properties are identified.

8

(b) Results of Operations

The following is a brief discussion of a comparison of the results of operations
for the three years ended December 31, 1995, 1994 and 1993.

1995 vs 1994

The Partnership's net investment income for 1995 was $14,720,271, an increase of
$1,872,072 (14.6%) from net investment income for 1994 of $12,848,199. The
increase was primarily the result of higher interest income from short-term
investments ($1,089,471) and net income from property operations ($1,058,039)
partially offset by lower interest income on mortgage loans ($105,694).

Income from property operations, including income from interest in
properties, was $15,081,290 for 1995. Income from interest in properties
relates to the Partnership's 50% co-investment in several warehouses (the
Unit warehouses). This is an increase of $1,058,039 (7.5%) from $14,023,251
for 1994. This was due primarily to increased rent from properties
(approximately $3,482,785). The increase was offset by lower income from
interest in properties due to the sale for the seven Unit warehouses in
October, 1994 (approximately $1,717,000), higher real estate taxes
(approximately $145,000), property administrative expenses (approximately
$399,000), and property operating expenses (approximately $163,000).

Rent from properties for 1995 increased by $3,482,785 (21.3%) to $19,827,044
from $16,344,259 for 1994. A large portion of this was the result of
properties that were acquired during 1995. This revenue totaled approximately
$1,466,000. Revenue provided by the apartments in Raleigh was $1,111,744, the
office building in Nashville, $331,165 and the office building in Oakbrook
Terrace, $23,587. Rental income at the Flint office park increased by
approximately $662,600 in 1995. This was primarily due to the acquisition of
this property through foreclosure in July, 1994. As a result, only six months
of operating results are included in 1994 as compared to a full year in 1995.
Increased occupancy in 1995 resulted in an additional $906,000 in rental
revenue for the Azusa and Morristown buildings as well as the Partnership's
two other apartment properties. Rental income at the Bolingbrook warehouse
increased about $82,000 in 1995 as a result of the expiration of a free rent
period granted to the tenant in the first quarter of 1994. Revenue at the
Pomona warehouse was almost $221,000 higher due to increased occupancy and
higher expense recoveries.

These additional revenues were partially offset by the net effect of
approximately $15,000, due to lower percentage rent in 1995 from the Roswell, GA
shopping center, offset by higher rental income and expense recoveries.

Income from the Unit Warehouses decreased $1,717,021 (72.9%) from $2,355,204 for
1994 to $638,183 for 1995. The Partnership sold its investments in seven of
these warehouses in 1994. Of the four remaining warehouses, income increased by
approximately $83,000 due to higher occupancy at one of the warehouses.

Administrative expenses on the statement of operations includes both those
related to property operations and the administration of the Partnership.
Property administrative expenses for 1995 were $1,575,663. This is $399,265
(33.9%) higher than the $1,176,398 for 1994. Most of the increase was the result
of the inclusion of the Flint, Raleigh and Nashville properties, (almost
$270,000), higher insurance premiums ($72,000) primarily at the two California
properties and in increase in bad debt expense ($63,000). The increase in bad
debt expense arose from the 1994 application of a security deposit to amounts
owed by that tenant which reduced 1994 bad debt expense by approximately
$33,000. Professional fees also increased approximately $45,000 in 1995 due to
the utilization of real estate tax consultants to assist with the appeal values
at several of the properties. The appeal generated

9

significant tax savings as noted below. Advertising and promotional expenses
were lower at several of the properties which offset the increased
administrative expenses by about $40,000.

Property operating expenses for 1995 were $1,870,183 compared to $1,707,039 for
1994, an increase of $163,144 (9.6%). The increase was primarily due to the
inclusion of approximately $217,336 in operating expenses related to the Raleigh
and Nashville properties. The Flint property had an increase of $73,600 when
comparing the full year 1995 to the last six months of 1994. In addition there
were higher repairs and maintenance at the Farmington Hills apartments of
approximately $18,500. These increases were reduced by lower expenses at the
Azusa warehouse related to the painting of building exteriors in 1994
($88,500), at Pomona due to lower repairs and maintenance ($24,500), and lower
repairs and maintenance, security and utilities at Roswell ($35,000).

Real estate taxes for 1995 were $1,938,090, a net increase of $145,315 (8.1%)
from $1,792,775 for 1994. Approximately $244,000 of the increases was due to the
inclusion of the Flint office buildings, where $101,000 of 1994 taxes were
reflected in 1995 activity. The acquisition of the Raleigh apartments and the
Nashville office center also contributed to this increase. At the Roswell
shopping center, real estate taxes had a net increase of $31,500. These
increases were offset by approximately $153,000 in decreases achieved as the
result of appealing the assessed values at the Azusa, Pomona, Morristown and
Farmington Hills properties. Real estate taxes at the net lease properties in
Bolingbrook and Lisle also increased nearly $22,000.

There was no interest income from mortgage loans in 1995. This was due to the
maturing of the Lincoln, NE loan in May 1994 and the 1994 default of the
mortgagor on the Flint loan. Interest income from short-term investments
increased $1,089,471 (69.3%) from $1,571,394 for 1994 to $2,660,865 for 1995.
This was the result of increased amounts invested and higher interest rates in
1995. The Partnership had retained increased cash balances in anticipation of
acquiring properties in 1995.

Administrative expenses related to the Partnership totaled $219,429 for 1995.
This is a reduction of $17,895 (7.5%) from $237,324 for 1994. The decrease
resulted primarily from lower professional fees for 1995.

The investment management fee for 1995 was $2,341,878. This is $54,062 (2.4%)
higher than the fee for 1994 of $2,287,816. The fee is computed as 1.25% of
gross daily assets. During 1995, gross assets were slightly higher than the
prior year due to cash flow retained by the Partnership and increased market
values of the real estate investments.

Market values of invested assets: 1995 vs 1994

During 1995, the Partnership recognized an unrealized gain of $661,623 on its
real estate investments. This represents 0.5% of the investments' December 31,
1994 value. The apartments experienced the largest increase, approximately
$2,700,000. The warehouses increased by about $421,000. The office building
properties experienced an unrealized loss of approximately $1,933,000 and the
retail property, an unrealized loss of about $528,000.

The Partnership's luxury garden apartments in Raleigh had an unrealized gain of
nearly $1,441,300. The property has benefited from very strong leasing demand
(occupancy at December 31, 1995 was 95%) and is performing at a higher level
than anticipated. The Farmington Hills and Atlanta apartments experienced
unrealized gains of $626,143 (4.6% of its year-end 1994 value) and $634,165
(5.3% of its year-end 1994 value), respectively. These increases were primarily
the result of higher rental rates, occupancy and tenant retention than
previously projected for these properties.

10

The warehouses experienced an unrealized gain of about $421,000 during 1995. The
Pomona property had the largest unrealized gain, $684,153 (4.2% of its year-end
1994 value). This was the result of two leases that were signed which brought
the occupancy to 100%. The market values of the four Unit warehouses in which
the Partnership owns a 50% interest at the end of 1995 increased $49,134 (.9% of
their December 31, 1994 value).

The warehouse in Bolingbrook experienced an unrealized gain of $357,563 (5.1%
of the property's December 31, 1994 value). This was due to lower estimates
of operating expenditures.

The increases in the market values of these warehouses were partially offset by
a decrease of $669,928 (4.3% of the property's December 31, 1994 value) in the
market value of the Azusa warehouse. The decrease in market value was partially
attributable to less optimistic assumptions of expense growth, future rental
rates and leasing activity as current leases expire, based on the property's
competitive position in the local market.

The office buildings experienced an unrealized loss of approximately $1,933,000.
The Flint property value decreased $1,314,060 (17.1% of its December 31, 1994
value). This was caused by reduced expectations of future rental rate increases
and tenant renewals due to increased competition from new construction in the
Flint market. The Lisle office building decreased in value by $400,000 (3.3% of
the property's December 31, 1994 value) and the Morristown property also
decreased in value by $473,993 (4.8% of its December 31, 1994 value). The Lisle
property's decrease in value reflects the possibility that the current tenant,
R.R. Donnelley, may not remain in the building when their current lease expires
in 1997. This would result in downtime while a new tenant was found and
necessitate incurring additional tenant improvements and leasing commissions. It
is also likely that the rental rate on any new lease would be lower than that
currently paid by Donnelley. The decline in the value of the Morristown property
was the result of increases in the discount rates, reflecting the soft market
conditions in the local areas and the expectations that potential buyers are
requiring higher returns on such investments. The decreases in value at the
office buildings were partially offset by an increase of $254,871 at the
Nashville building. The increase represented 3% of its acquisition cost. The
rise in value reflects the expectations of continued high occupancy and the
potential for higher rental rates in the future.

The Partnership's sole retail property, King's Market Shopping Center in
Roswell, GA, experienced an unrealized loss of $527,726 (1.6% of its December
31, 1994 value). This was due to increased competition in the local market due
to the construction of a competing shopping center which is expected to exert
downward pressure on rental rates.

Property leasing activity

Occupancy at the Partnership's properties at December 31, 1995 is generally
higher than at December 31, 1994. The Partnership acquired two office properties
in 1995. Westpark, an office building in suburban Nashville, TN has 96,880
rentable square feet. At December 31, 1995 the property was 98.6% leased. There
is one lease expiring in 1996 for 6,257 square feet. We expect to renew this
tenant in that space. The Partnership is actively marketing the available
vacancy of 1,350 square feet. Oakbrook Terrace is located in Oakbrook, Illinois.
The property is 99.5% leased and there are no expirations in 1996.

Occupancy at Pomona increased from 83% at December 31, 1994 to 100% at the end
of 1995. During the second quarter of 1995, two leases were signed which brought
occupancy to 100%. Pac Rosa Enterprises signed a three year lease covering
33,400 square feet (6% of the property). The tenant took occupancy July 1, 1995.
The second was a 55,000 square foot expansion by Ashley Furniture (10% of the
property). The lease expires concurrent with their existing lease in 2003. There
are two leases which expire in 1996. Inter City Products occupies 33,300 square
feet (6% of the property) and their lease

11

expires in January, however they will continue to occupy the space on a month to
month basis. The Partnership does not expect them to renew and efforts are
underway to market the space. Structural Composite's lease expires in November.
This tenant occupies 56,450 square feet (11% of the property) and we expect them
to renew although no agreement has been reached.

The Unit warehouses were 100% occupied at December 31, 1995 compared to 92% at
the end of December, 1994. The Biaggi Brothers signed a two year lease covering
90,000 square feet at one of the Unit warehouses (18% of the four buildings)
effective February 1, 1995. This brought the occupancy at the four buildings to
100%. Associated Unit Companies renewed their lease for two years at a rental
rate approximately 10% greater than that on the expiring lease. The lease covers
102,000 square feet (20% of the four Unit warehouses). The Unit warehouses have
two leases expiring in 1996 covering 198,240 square feet. The Partnership is
currently in negotiations with Angelo Brothers to exercise their option to renew
the lease in their current space of 84,000 square feet (17% of the four
warehouses). The Partnership expects this tenant to renew the lease prior to its
expiration in April, 1996. GATX's lease expires in May, 1996. Presently, they
occupy 114,240 square feet. The Partnership is discussing renewal terms with
this tenant, but we do not believe they will renew. Management is marketing the
space to others and does not expect a significant down time to re-lease the
space.

The warehouse in Bolingbrook continues to be fully occupied by Gillette under a
lease expiring in 2000.

The Morristown office building was 94.8% occupied at December 31, 1995 a
slight increase of 2% from December, 1994. During 1995, Kodak renewed its
lease covering 6,600 square feet (8% of the property). The new lease expires
on February 28, 2003. During the fourth quarter of 1994, a 2,100 square foot
expansion was executed with Smith Barney, effective January 16, 1995. The
lease expires in 1997. Chase Home Mortgage's lease expired on December 31,
1995. Their lease was extended through March 31, 1996. The Partnership does
not expect them to renew their lease. Mutual of Omaha's lease expires in
March, 1996. They currently occupy 5,769 square feet (7% of the property).
Discussions are being held with this tenant and we do not expect them to
renew their lease in 1996. Spectrum signed a new lease and moved into a
larger space that will increase their square footage from 2,350 to 3,765 or
4% of the property. The Partnership is also discussing expansions with other
tenants in the property and actively marketing the available space. No other
leases are scheduled to expire in 1996.

The office building in Lisle continues to be fully leased to R.R. Donnelley
under a lease expiring in September 1997. The lease contains two five-year
renewal options. Discussions are being held with this tenant in an attempt to
secure an early renewal. The tenant is also evaluating alternatives at other
properties.

King's Market Shopping Center in Roswell, GA was 99% leased at December 31,
1995 as it was at the end of 1994. Two new tenants signed leases totaling
5,450 square feet (2% of the center) in 1995. Roswell Pet Supply renewed
their lease in the fourth quarter of 1995 for 4,100 square feet (2%) of the
center. Four tenant's totaling 7,864 square feet (5% of the property) expire
in 1996. Two tenants occupying 2,882 square feet (1% of the property) are
expected to renew. The Partnership is discussing potential renewal terms with
the current tenants. The Men's Wearhouse (3,982 square feet or 2% of the
property) is expected to vacate at the expiration of its lease in May, 1996.
Kid's Mart vacated in January, 1996 and will not be renewing. Parties Galore
vacated in December, 1995. They had occupied 6,100 square feet (2% of the
property). The Partnership is marketing these spaces and expects to lease
them in 1996. Leases covering the major tenants at the shopping center, Home
Depot, CompUSA and A&P, are not scheduled to expire until after 2003.
Marshalls, Inc. was acquired by TJX Companies, Inc., in 1995. Marshalls'
lease covers 25,000 square feet (8.4% of the property), and expires on
January 31, 1999. There is some uncertainty regarding their continued
tenancy, and TJX Companies, Inc., is currently evaluating the Marshalls'
locations to determine how these stores will fit into their future strategy.

12

As of December 31, 1995, the Partnership's residential properties located in
Atlanta, GA and Farmington Hills, MI were 97% and 98% leased, respectively.
Occupancy ranged from 96% to 98% during 1995. At December 31, 1994, these
properties were 98% leased. The luxury garden apartments in Raleigh, NC were
acquired in June, 1995. This property was approximately 95% leased at December
31, 1995. Market rental rates are expected to increase slightly in 1996 in the
residential markets in which the Partnership's apartments are located. Occupancy
at these properties are expected to remain strong over the upcoming year.

1994 vs 1993

The Partnership's net investment income for 1994 was $12,848,199, an increase
of $193,568 (1.5%) from the net investment income for 1993 of $12,654,631.
The increase was primarily the result of higher interest income from
short-term investments ($827,470) and income from property operations
($270,620) partially offset by lower interest income on mortgage loans
($917,598).

Income from property operations, including income from interest in properties,
was $14,023,251 for 1994. This is an increase of $270,620 (2.0%) from
$13,752,631 for 1993. This was due primarily to increased rent from properties
(approximately $533,000) and lower real estate taxes (approximately $193,000)
and property administrative expenses (approximately $157,000). These were
partially offset by lower income from interest in properties (approximately
$546,000) and increased property operating expenses (approximately $67,000).

Rent from properties for 1994 increased by $533,265 (3.4%) to $16,344,259 from
$15,810,994 for 1993. Higher occupancy in 1994 at the Roswell shopping center
and the Partnership's two apartment properties resulted in approximately
$430,000 in additional rental income. Percentage rent at the shopping center
also increased nearly $198,000 primarily as a result of the property now billing
tenants for such rent throughout the current year rather than in arrears.

Rental income at the Morristown office building increased by approximately
$139,000 in 1994 due to a retroactive rent adjustment for Midlantic Bank and
scheduled rest step-ups and the ending of free rent periods for various tenants.

Beginning July 1, 1994, the Partnership is receiving all of the revenue from the
property related to the foreclosed Flint mortgage loan. This amounted to
approximately $675,000 for the last six months of 1994.

These additional revenues were partially offset by lower rental income from the
Azusa warehouse (approximately $582,000) due to lower occupancy in 1994, rent no
longer received on the Denver warehouse sold in 1993 (approximately $67,000), a
lower rental rate and concessions granted to Gillette in 1994 related to their
early lease renewal (approximately $90,000) and lower recoveries of real estate
taxes at the net leased properties in Lisle and Bolingbrook (approximately
$47,000). Expense recoveries also declined by approximately $159,000 at Pomona
in 1994. This was the result of lower recoverable expenses at the property.
Revenue in 1993 included recoveries for parking lot and roof repairs for which
there were no corresponding amounts in 1994.

Income from interest in properties relates to the Partnership's 50%
co-investment in several warehouses (the Unit warehouses). Income from this
source decreased $546,273 (18.8%) from $2,901,477 for 1993 to $2,355,204 for
1994. The Partnership sold its investments in two of these warehouses in 1993
and seven warehouses in 1994. This resulted in a reduction of income of
approximately $476,000 in 1994. Lower occupancy at one of the remaining
warehouses also reduced income by approximately $75,000.

13

Administrative expenses on the statement of operations includes both those
related to property operations and the administration of the Partnership.
Property administrative expenses for 1994 were $1,176,398. This is $157,368
(11.8%) lower than the $1,333,766 for 1993. Most of the decrease was the
result of non-recurring expenses in 1993. In 1993, the Roswell shopping
center reported approximately $46,000 in bad debt expense related to a
bankrupt tenant, Lionel Playworld. No such charge was incurred in 1994. A
casualty loss of approximately $53,000 was also incurred at the shopping
center in 1993. At the Azusa warehouse, a tenant vacated its space in 1993,
before the expiration of its lease resulting in a bad debt expense of nearly
$156,000 in 1993. No such charge was incurred in 1994. In addition, the 1994
application of a security deposit to amounts owed by that tenant reduced 1994
bad debt expense by approximately $33,000.

These reductions were partially offset by an increase in insurance premiums of
nearly $63,000, primarily at the Azusa, Pomona and Roswell properties and
approximately $22,000 in higher advertising and promotional expenses at these
same properties. In addition, approximately $59,000 in administrative expenses
were incurred at the Flint property acquired through foreclosure in 1994.

Property operating expenses for 1994 were $1,707,039 compared to $1,639,828 for
1993, an increase of $67,211 (4.1%). The increase was the result of
approximately $64,000 in operating expenses related to the Flint property for
the last six months of 1994 and nearly $37,000 in higher repairs and maintenance
expenses, particularly at the Azusa warehouse related to the painting of
building exteriors. These were partially offset by a reduction of almost $34,000
due to the sale of the Denver property in 1993.

Real estate taxes for 1994 were $1,792,775, a reduction of $193,471 (9.7%) from
$1,986,246 for 1993. Approximately $110,000 of this decrease was the result of
appealing the assessed values of the Azusa, Pomona and Morristown properties.
The sale of the Denver warehouse reduced real estate taxes by approximately
$32,000. Real estate taxes at the net lease properties in Bolingbrook and Lisle
also decreased nearly $47,000. As net leased properties, the tenants absorb
almost all operating costs, so this decrease also reduced rental income as noted
above.

Interest income on the mortgage loans decreased $917,598 (89.7%) from $1,023,292
for 1993 to $105,694 for 1994. This was due to the maturing of the Lincoln, NE
loan in May 1994 and the default of the mortgagor on the Flint loan. These are
discussed further in the Liquidity and Capital Resources section.

Interest income from short-term investments increased $827,470 (111.2%) from
$743,924 for 1993 to $1,571,394 for 1994. This was the result of increased
amounts invested and higher interest rates in 1994. As noted above, the
Partnership is retaining increased cash balances in anticipation of acquiring
properties in 1995.

Administrative expenses related to the Partnership totalled $237,324 for 1994.
This is a reduction of $38,202 (13.9%) from $275,526 for 1993. The decrease
resulted primarily from lower professional fees for 1994.

The investment management fee for 1994 was $2,287,816. This is $18,610 (0.8%)
higher than the fee for 1993 of $2,269,206. The fee is computed as 1.25% of
gross assets. During 1994, gross assets were slightly higher than the prior year
due to cash flow retained by the Partnership and increased market values of the
real estate investments.

Interest expense relates to the obligation under capital lease. For 1994,
interest expense was $327,000. This is $6,516 (2.0%) higher than interest
expense for 1993 of $320,484.

During 1994, the Partnership sold its 50% interest in the two Unit warehouses
located in Atlanta and the ones located in Desoto, TX; Fort Worth, TX;
Shreveport, LA; Bedford Park, IL; and Normal, IL.

14

The proceeds, net of related costs, were approximately $19,020,000, resulting
in a realized loss of approximately $1,237,000. Realized loss is the
difference between net sales proceeds and the cost of the properties. The
Partnership had already recognized decreases in the properties' market values
in prior periods, so the net sales proceeds actually exceeded the values at
which the properties were carried on the sale date by approximately $445,000.
The proceeds from the sale are expected to be reinvested during 1995. The
Partnership still owns a 50% interest in the four warehouses located in
Jacksonville, FL. These are not currently being marketed for sale.

MARKET VALUES OF INVESTED ASSETS: 1994 vs 1993

During 1994, the Partnership recognized an unrealized gain of $2,576,828 on its
real estate investments. Of this, $1,502,226 represents the decreases in the
market values of the Unit warehouses sold in October 1994, which had already
been reported as unrealized losses in prior years. With the sale of the
properties, these unrealized losses were reclassified as unrealized gains on the
statement of operations. These unrealized gains revert the property value back
to its historical cost, which is used to calculate the $1,237,000 realized loss
described above. The remaining $1,074,602 is the result of increases in the
current values of the investments owned by the Partnership at the end of 1994.
This represents 0.8% of the investments' December 31, 1993 value.

The office buildings experienced the largest increase, approximately $1,145,000.
The apartments increased by about $945,000. The warehouses experienced an
unrealized loss of approximately $184,000 and the retail property, an unrealized
loss of about $832,000.

The office property acquired through the foreclosure of the Flint mortgage loan
experienced the largest increase in current value, $2,423,739 (42.6% of the
investment's December 31, 1993 value). After foreclosure, the Partnership
reviewed detailed operating information on the property. Based on current market
condition and property performance, an appraisal resulted in an increase in the
estimated market value.

This increase in value was partially offset by decreases in the values of the
Lisle office building of $1,200,000 (9% of the property's December 31, 1993
value) and the Morristown property of $78,321 (0.8% of its December 31, 1993
value). The former was caused by reduced expectations that the current tenant,
R.R. Donnelley, will remain in the building when their current release expires
in 1997. This would result in downtime while a new tenant was found and
necessitate incurring additional tenant improvements and leasing commissions. It
is also likely that the rental rate on any new lease would be lower than that
currently paid by Donnelley. The decline in the value of the Morristown property
was the result of projected increases in tenant improvements and leasing
commissions which will be necessary to lease the remaining vacant space.

The Partnership's apartment complexes in Atlanta had an unrealized gain of
$671,245 (6.0% of the property's December 31, 1993 value) while the Farmington
hills apartments experienced an increase of $274,134 (2.1% of its year-end 1993
value). These increases were primarily the result of higher rental rates,
occupancy and tenant retention than previously projected for these properties.

The Partnership's sole retail property, King's Market Shopping Center in
Roswell, GA, experienced an unrealized loss of $832,405 (2.5% of its December
31, 1993 value). This was due to capital expenditures at the property during
1994 which did not result in a corresponding increase in the shopping center's
value and reduced expectations concerning future rental rates when current
leases expire.

The warehouses experienced an unrealized loss of almost $184,000 during 1994.
The Pomona property had the largest loss, $1,679,740 (9.4% of its year-end 1993
value). This change was due primarily to the increased cost of a planned roof
replacement program and an acceleration in the timing of that work.

15

The market values of the four Unit warehouses in which the Partnership owns a
50% interest at the end of 1994 increased $214,364 (3.9% of their December 31,
1993 value). This resulted from leasing the vacant space at one of the
warehouses effective February 1995 as well the improved potential for higher
rental rates on new and renewal leases on these properties.

The warehouse in Bolingbrook experienced an unrealized loss of $80,303 (1.2% of
the property's December 31, 1993 value) due to capital expenditures which did
not increase the property's value.

The decreases in the market values of these warehouses were partially offset by
an increase of $1,361,890 (10.0% of the property's December 31, 1993 value) in
the market value of the Azusa warehouse. This was the result of the new lease
with Best Buy bringing the property's occupancy to 100% as well as improved
conditions in the local market.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data listed in the accompanying Index
to Financial Statements and Supplementary Data are incorporated herein by
reference and filed as a part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PRUDENTIAL

DIRECTORS OF THE PRUDENTIAL

FRANKLIN E. AGNEW, Director since 1994 (current term expires April, 2000).
Member, Finance Committee; Member, Committee on Dividends. Business Consultant
since 1987. Mr. Agnew is also a director of Bausch & Lomb and John Wiley & Sons
Inc. Age 61.

FREDERICK K. BECKER, Director since 1994 (current term expires April, 1999).
Member, Auditing Committee; Member, Committee on Business Ethics. President,
Wilentz, Goldman and Spitzer (law firm) since 1989. Age 60.

WILLIAM W. BOESCHENSTEIN, Director since 1982 (current term expires April,
1997). Chairman, Executive Committee; Member, Auditing Committee. Retired
since 1990. Mr. Boeschenstein is also a director of FMC Corporation. Age 70.

LISLE C. CARTER, JR., Director since 1987 (current term expires April, 1997).
Chairman, Committee on Nominations; Member, Executive Committee; Member,
Finance Committee. Retired since 1991. Senior Vice President and General
Counsel, United Way of America from 1988 to 1991. Age 70.

JAMES G. CULLEN, Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics.
President, Bell Atlantic Corporation since 1993. President New Jersey Bell from
1989-1993. Mr. Cullen is also a director of First Fidelity Bancorporation and
Johnson & Johnson. Age 53.

CAROLYNE K. DAVIS, Director since 1989 (current term expires April, 1997).
Member, Compensation Committee; Member, Finance Committee; Member, Committee on
Business Ethics. Health Care Advisor, Ernst & Young since 1985. Dr. Davis is
also a director of Merck & Co. Inc., Beckman Instruments, Inc., Pharmaceutical
Marketing Services, Inc. and Science Applications International Corp. Age 64.

ROGER A. ENRICO, Director since 1994 (current term expires April, 1998).
Member, Committee on Nominations; Member, Compensation Committee. Vice
Chairman, Pepsi Co. Inc. since 1993. Chairman and CEO, Pepsi Co. Worldwide
Food, from 1991 to 1993. President and CEO Pepsi Co. Worldwide Beverage from
1986-1991. Mr. Enrico is also a director of Dayton Hudson Corp., PepsiCo Inc.,
and A.H. Bello Corp. Age 51.

ALLAN D. GILMOUR, Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Former Vice Chairman, Ford Motor Company. Mr.
Gilmour is also a director of Whirlpool Corporation, U.S. West Inc., and The Dow
Chemical Company. Age 61

WILLIAM H. GRAY III, Director since 1991 (current term expires April, 1996).
Member, Finance Committee; Member, Committee on Nominations. President and
Chief Executive Officer, United Negro College Fund, Inc. since 1991. Appointed
special advisor to Haiti by President Bill Clinton, May 1994. Mr. Gray served
in Congress from 1979 to 1991. Mr. Gray is also a director of Warner-Lambert
Co., Chase Manhattan Corp., Municipal Bond Investors Assurance Corp.,
Westinghouse Electric Corp., Union Pacific Corp, Lotus Development Corp. and
Rockwell International Corp. Age 54.

JON F. HANSON, Director since 1991 (current term expires April, 1997). Member,
Committee on Dividends; Member, Finance Committee. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources. Age 59.

17

CONSTANCE J. HORNER, Director since 1994 (current term expires April, 1998).
Member, Committee on Nominations; Member, Auditing Committee. Guest Scholar,
The Brookings Institution since 1993. Assistant to the President and Director of
Presidential Personnel, U.S. Government, 1991-1992. Deputy Secretary,
Department of Health and Human Services from 1989 to 1991. Ms. Horner is also a
director of Pfizer, Inc and Ingersoll-Rand Company. Age 54.

ALLEN F. JACOBSON, Director since 1992 (current term expires April, 1998).
Member, Auditing Committee; Member, Compensation Committee. Retired since 1991.
Chairman of the Board and Chief Executive Officer, Minnesota Mining &
Manufacturing Co. from 1986 to 1991. Mr. Jacobson is also a director of Abott
Laboratories, Deluxe Corp., Northern States Power Co., Silicon Graphics, Inc.,
Valmont Industries, 3M, Mobil Corporation, U.S. West, Inc., Sara Lee Corporation
and Potlatch Corporation. Age 69.

GARNETT L. KEITH, JR., Director since 1984 (current term expires April, 1999).
Vice Chairman of Prudential since 1984. Mr Keith is also a director of Super
Valu Stores, Inc., AEA Investors, Inc., and Pan-Holding, Societe Anonyme. Age
60.

BURTON G. MALKIEL, Director since 1978 (current term expires April, 1998).
Chairman, Finance Committee; Member, Committee on Nominations; Member, Executive
Committee. Chemical Bank Chairman's Professor of Economics, Princeton
University, since 1988. Dr. Malkiel is also a director of The Jeffrey Co.,
Vanguard Group, Inc., Amdahl Corp., Baker Fentress & Co. and Southern New
England Telecommunications Co. Age 63.

JOHN R. OPEL, Director since 1984 (current term expires April, 1996). Chairman,
Committee on Dividends; Member, Compensation Committee; Member, Executive
Committee; Member, Finance Committee. Retired Chairman, International Business
Machines Corporation since 1986; Chairman of the Executive Committee, IBM, from
1986 to 1993. Mr. Opel is also a director of AEA Investors, Inc. Age 71.

ARTHUR F. RYAN, Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972.
Age 53.

CHARLES R. SITTER, Director since 1995 (current term expires April, 1999).
Member, Committee on Dividends. President and Director of Exxon Corporation
since 1993. Age 65.

DONALD L. STAHELI, Director since 1995 (current term expires April, 1999).
Member, Compensation Committee. Chairman and Chief Executive Officer of
Continental Grain Company since 1994. Prior to 1994, Mr. Staheli was Chairman
of Continental Grain Company. Age 64.

RICHARD M. THOMSON, Director since 1976 (current term expires April, 1996).
Chairman, Compensation Committee; Member, Committee on Nominations; Member,
Executive Committee. Chairman of the Board and Chief Executive Officer, The
Toronto-Dominion Bank since 1978. Mr. Thomson is also a director of National
Retail Credit Services Limited, Inc., Eaton's of Canada, Ltd., INCO, Ltd., The
Thomson Corp., S.C. Johnson and Son, Inc., TEC Leaseholds Limited, Thomglen
Corporation, and The Toronto-Dominion Bank. Age 62.

P. ROY VAGELOS, M.D., Director since 1989 (current term expires April, 1997).
Chairman, Auditing Committee; Member, Committee on Dividends; Member, Executive
Committee. Chairman, Regeneron Pharmaceuticals since 1995. Chairman, President
and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994. Dr. Vagelos
is also a director of Pepsi Co., Inc., Regeneron Pharmaceuticals, McDonnell
Douglas Corporation, and Estee Lauder Companies. Age 66.

STANLEY C. VAN NESS, Director since 1990 (current term expires April, 1996).
Chairman, Committee on Business Ethics; Member, Auditing Committee; Member,
Executive Committee. Attorney, Picco Mack Herbert Kennedy Jaffe Perella and
Yoskin (law firm) since 1990. Mr. Van Ness is also a director of Jersey
Central Power

18

& Light Company. Age 62.

PAUL A. VOLCKER, Director since 1988 (current term expires April, 1996).
Member, Committee on Dividends; Member, Committee on Nominations. Chief
Executive Officer, James D. Wolfensohn, Inc. Since 1995. Chairman, James D.
Wolfensohn, Inc. since 1988. Chairman, J. Rothschild, Wolfensohn & Co. since
1992. Mr. Volcker is also a director of Fuji-Wolfensohn International, Nestle,
S.A., American Stock Exchange, Municipal Bond Investors Assurance Corporation,
J. Rothschild/Wolfensohn and Company, and UAL Corporation. Age 68.

JOSEPH H. WILLIAMS, Director since 1994 (current term expires April, 1998).
Member, Committee on Dividends; Member, Auditing Committee. Chairman of the
Board, The Williams Companies since 1994. Chairman and Chief Executive Officer,
The Williams Companies 1979-1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and The Williams Companies, Inc. Age 62.

19

EXECUTIVE OFFICERS OF THE PRUDENTIAL

ARTHUR F. RYAN, Chairman, Chief Executive Officer, and President since 1994;
1990-1994, President and Chief Operating Officer, Chase Manhattan Corp. Age 53

GARNETT L. KEITH, JR., Vice Chairman since 1984. Age 60.

E. MICHAEL CAULFIELD, Chief Executive Officer, Money Management Group since
1995; 1992-1995, Senior Vice President; 1989-1992, Managing Director. Age 49.

MARK B. GRIER, Executive Vice President and CFO, Individual Insurance Group
since 1995; 1995-1984, Executive Vice President, Chase Manhattan Bank. Age 43

EUGENE B. HEIMBERG, President and Chief Investment Officer, Prudential
Investment Company since 1995; Senior Vice President since 1987. Age 62.

WILLIAM P. LINK, President and Chief Executive Officer, Prudential Health Care
Group since 1995; 1990-1995, Executive Vice President, Prudential. Age 48.

JOHN V. SCICUTELLA, Operations and Systems Executive Officer since 1995; 1970-
1995, Executive Vice President, The Chase Manhattan Bank. Age 46.

ERIC A. SIMONSON, President, Private Asset Management Group since 1995; 1992-
1994, President, Prudential Investment Advisory Company, Ltd.; 1990-1992,
Chairman, Prudential Capital Corporation. Age 50.

WILLIAM F. YELVERTON, Chief Executive Officer, Individual Insurance Group since
1995; 1990-1995, Chief Executive Officer, New York Life Worldwide. Age 54.

MARTIN A. BERKOWITZ, Senior Vice President and Comptroller since 1995; 1991-
1995, Senior Vice President and CFO, Prudential Investment Company. Age 47.

WILLIAM M. BETHKE, President, Capital Markets Group since 1995; Senior Vice
President since 1986. Age 48.

STEPHEN R. BRASWELL, Senior Vice President and Chief Ethics Officer, Enterprise
Ethics Office since 1995; Senior Vice President since 1983. Age 56.

ROBERT M. CHMELY, President, Guaranteed Products and Retirement Administration
since 1995; Senior Vice President since 1988. Age 60.

WILLIAM D. FRIEL, Senior Vice President and Chief Information Officer since
1995; 1993-1995, Senior Vice President; 1988-1992, Vice-President. Age 56.

JAMES R. GILLEN, Senior Vice President and General Counsel since 1984. Age 58.

BRUCE J. GOODMAN, Chief Executive Officer, Prudential Service Company since
1995; 1993-1995, Senior Vice President; 1992-1993, Senior Vice President,
Metropolitan Life; 1977-1991, Vice President, Metropolitan Life. Age 54.

20

SAMUEL H. HAVENS, President, Prudential Health Care since 1995; 1989-1995,
Senior Vice President.
Age 52.

IRA J. KLEINMAN, Chief Marketing and Product Development Officer, Individual
Insurance Group since 1995; 1992-1995, Senior Vice President; 1978-1992, Vice
President. Age 48.

DONALD C. MANN, Senior Vice President, Human Resources since 1995; 1990-1995,
Senior Vive President. Age 53.

PRISCILLA A. MYERS, Senior Vice President and Auditor since 1995; 1989-1995,
Vice President and Auditor, Prudential. Age 46.

RICHARD O. PAINTER, President, Prudential Insurance & Financial Services since
1995; 1989-1995, Senior Vice President, New York Life Insurance Company Age 47.

I. EDWARD PRICE, Senior Vice President and Actuary, Individual Insurance Group
since 1995; 1993-1995, Senior Vice President; 1990-1993, Senior Vice President
and Company Actuary. Age 53.

KIYOFUMI SAKAGUCHI, President, Prudential International Insurance since 1995;
1994-1995, Chairman and CEO, Prudential Life Insurance Ltd., Japan; 1991-1994,
President and CEO, Prudential International Insurance. Age 52.

GREGORY W. SCOTT, Chief Financial Officer, Prudential Health Care Group since
1995; 1993-1995, Executive Vice President and CFO, Prudential Securities Inc.
Age 42.

SUSAN L. BLOUNT, Vice President and Secretary since 1995; 1989-1995, Assistant
General Counsel, PRSC. Age 38.

C. EDWARD CHAPLIN, Vice President and Treasurer since 1995; 1983-1995, Vice
President and Assistant Treasurer. Age 39.

ITEM 11. EXECUTIVE COMPENSATION

The Real Property Account does not pay any fees, compensation or reimbursement
to any Director or Officer of the Registrant.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Not applicable.

21

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to an investment management agreement, the Partnership has retained The
Prudential to act as investment manager of the Partnership. The Prudential
charges the Partnership a daily investment management fee which is equal to an
effective annual rate of 1.25% of the average daily total asset valuation of the
Partnership. The amount incurred by the Partnership for the year ended December
31, 1995 was $2,341,878.

The Partnership reimburses The Prudential for certain administrative services
rendered by The Prudential. The amount incurred by the Partnership for the year
ended December 31, 1995 was $219,429.

The Partnership owns a 50% interest in four warehouse/distribution buildings in
Jacksonville, Florida (the Unit warehouses). The total cost of the Partnership's
interest is $6,133,157. The remaining 50% interest is owned by The Prudential
and one of its subsidiaries.

The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential, to provide property management
services at the Unit warehouses, through August 1995 at the Bolingbrook, IL
warehouse, through October 1994 at the Atlanta, GA, Desoto, TX, Fort Worth, TX,
Shreveport, LA, Bedford Park, IL, and Normal, IL warehouses, and through August
1993 at the Pomona and Azuza warehouses. The property management fees earned by
PREMISYS during 1995 were $31,360.

22

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

(a) The following documents are filed as part of this report:

1. Financial Statements

See the Index to Financial Statements and Supplementary Data on pages
F-1 and F-2.

2. Financial Statement Schedules

The following financial statement schedules of The Prudential Variable
Contract Real Property Partnership should be read in conjunction with
the financial statements incorporated by reference in Item 8 of this
Annual Report on Form 10-K:

III. Real Estate Owned: Properties
III. Real Estate Owned: Interest in Properties

See the Index to Financial Statements and Supplementary Data on pages
F-1 and F-2.

3. Documents Incorporated by Reference

See the following list of exhibits.

4. Exhibits

See the following list of exhibits.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the year of 1995..

(c) The following is a list of Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995. The Registrant will
furnish a copy of any Exhibit listed below to any security holder of the
Registrant who requests it upon payment of a fee of 15 cents per page. All
Exhibits are either contained in this Annual Report on Form 10-K or are
incorporated by reference as indicated below.

3.1 Amended Charter of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(a) to Post-Effective Amendment No. 2 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1989, and
incorporated herein by reference.

3.2 Amended By-Laws of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 4 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1990, and
incorporated herein by reference.

23

3.3 Resolution of the Board of Directors establishing The Prudential
Variable Contract Real Property Account, filed as Exhibit (3C) to Form
S-1, Registration Statement No. 33-20083, filed February 10, 1988, and
incorporated herein by reference.

4.1 Revised Individual Variable Annuity Contract filed as Exhibit A(4)(w)
to Post-Effective Amendment No. 8 to Form N-4, Registration Statement
No. 2-80897, filed October 23, 1986, and incorporated herein by
reference.

4.2 Discovery Plus Contract, filed as Exhibit (4)(a) to Form N-4,
Registration Statement No. 33-25434, filed November 8, 1988, and
incorporated herein by reference.

4.3 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with fixed death benefit, filed as Exhibit 1.A.(5) to Form
S-6, Registration Statement No. 33-25372, filed November 4, 1988, and
incorporated herein by reference.

4.4 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with variable death benefit, filed as Exhibit 1.A.(5) to
Form S-6, Registration Statement No. 33-25372, filed November 4, 1988,
and incorporated herein by reference.

4.5 Variable Appreciable Life Insurance Contracts with fixed death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.

4.6 Variable Appreciable Life Insurance Contracts with variable death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.

9. None.

10.1 Investment Management Agreement between The Prudential Insurance
Company of America and The Prudential Variable Contract Real Property
Partnership, filed as Exhibit (10A) to Pre-Effective Amendment No. 1
to Form S-1, Registration Statement No. 33-20083, filed May 2, 1988,
and incorporated herein by reference.

10.2 Service Agreement between The Prudential Insurance Company of America
and The Prudential Investment Corporation, filed as Exhibit (10B) to
Form S-1, Registration Statement No. 33-8698, filed September 12,
1986, and incorporated herein by reference.

10.3 Partnership Agreement of The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10C) to Pre-Effective Amendment
No. 1 to Form S-1, Registration Statement No. 33-20083, filed May 2,
1988, and incorporated herein by reference.

11. Not applicable.

12. Not applicable.

13. None.

18. None.

21. Not applicable.

24

22. Not applicable.

23. None.

24. Powers of Attorney: F. Agnew, F. Becker, W. Boeschenstein, L. Carter,
Jr., J. Cullen, C. Davis, R. Enrico, A. Gilmour, W. Gray, III, J.
Hanson, C. Horner, A. Jacobson, G. Keith, Jr., B. Malkiel, J. Opel, A.
Ryan, C. Sitter, D. Staheli, R. Thomson, P. Vagelos, S. Van Ness, P.
Volcker, and J. Williams, filed as Exhibit 9 to Post-Effective
Amendment No. 15 to Form S-6, Registration Statement No. 33-20000,
filed May 1, 1995, and incorporated herein by reference.

27. Not applicable.

28. None.

32

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
The Prudential Variable Contract Real Property Account
------------------------------------------------------
(Registrant)

Date: March 19, 1996 By: /s/ Esther H. Milnes
----------------- ------------------------
Esther H. Milnes
Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

* Chairman of the Board and March 18, 1996
------------------------ Chief Executive Officer
Arthur F. Ryan

/s/ Stephen P. Tooley Chief Accounting Officer March 18, 1996
- -------------------------
Stephen P. Tooley

* Director March 18, 1996
------------------------
Franklin E. Agnew

* Director March 18, 1996
------------------------
Frederic K. Becker

By: * /s/ Thomas J. Loftus
---------------------
Thomas J. Loftus
(Attorney-in-Fact)

26

Signature Title Date
- --------- ----- ----

* Director March 18, 1996
------------------------
William W. Boeschenstein

* Director March 18, 1996
------------------------
Lisle C. Carter, Jr.

* Director March 18, 1996
------------------------
James G. Cullen

* Director March 18, 1996
------------------------
Carolyne K. Davis

* Director March 18, 1996
------------------------
Roger A. Enrico

* Director March 18, 1996
------------------------
Allan D. Gilmour

* Director March 18, 1996
------------------------
William H. Gray, III

* Director March 18, 1996
------------------------
Jon F. Hanson

* Director March 18, 1996
------------------------
Constance J. Horner

* Director March 18, 1996
------------------------
Allen F. Jacobson

* Director March 18, 1996
------------------------
Garnett L. Keith, Jr.

* Director March 18, 1996
------------------------
Burton J. Malkiel

By: * /s/ Thomas J. Loftus
---------------------
Thomas J. Loftus
(Attorney-in-Fact)

27

Signature Title Date
- --------- ----- ----

* Director March 18, 1996
------------------------
John R. Opel

* Director March 18, 1996
------------------------
Charles R. Sitter

* Director March 18, 1996
------------------------
Donald L. Staheli

* Director March 18, 1996
------------------------
Richard M. Thomson

* Director March 18, 1996
------------------------
P. Roy Vagelos, M.D.

* Director March 18, 1996
------------------------
Stanley C. Van Ness

* Director March 18, 1996
------------------------
Paul A. Volcker

* Director March 18, 1996
------------------------
Joseph H. Williams

By: * /s/ Thomas J. Loftus
---------------------
Thomas J. Loftus
(Attorney-in-Fact)

28

THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)

INDEX

Page
----

A. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

Independent Auditors' Report F-3

Financial Statements:

Statements of Net Assets - December 31, 1995 and 1994 F-4

Statements of Operations - Years Ended December 31, 1995,
1994 and 1993 F-4

Statements of Changes in Net Assets - Years Ended
December 31, 1995, 1994 and 1993 F-5

Notes to Financial Statements F-6

B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

Independent Auditors' Report F-8

1. Financial Statements:

Statements of Assets and Liabilities - December 31, 1995
and 1994 F-9

Statements of Operations - Years Ended December 31, 1995,
1994 and 1993 F-10

Statements of Changes in Net Assets - Years Ended
December 31, 1995, 1994 and 1993 F-11

Statements of Cash Flows - Years Ended December 31, 1995,
1994 and 1993 F-12

Schedule of Investments - December 31, 1995 and 1994 F-13

Notes to Financial Statements F-16

F-1

THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)

INDEX

Page
----

B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP (continued)

2. Financial Statement Schedules:

III - Real Estate Owned: Properties F-21

III - Real Estate Owned: Interest in Properties F-22

All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements or notes thereto.

F-2

[Deloitte & Touche LLP letterhead]

INDEPENDENT AUDITORS' REPORT

To the Contract Owners of The Prudential
Variable Contract Real Property Account
Newark, New Jersey

We have audited the accompanying statements of net assets of The Prudential
Variable Contract Real Property Account ("Real Property Account") as of December
31, 1995 and 1994, and the related statements of operations and changes in net
assets for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Real Property Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Prudential Variable Contract Real
Property Account as of December 31, 1995 and 1994, and the results of its
operations and the changes in net assets for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

Investment in shares of The Prudential Variable Contract Real Property
Partnership is stated at current value at December 31, 1995 and 1994, as
discussed in Note 1 to the financial statements. Determination of current value
involves subjective judgment because the actual market value of such shares can
be determined only by negotiation between the parties in a sales transaction.

/s/ Deloitte & Touche LLP

March 1, 1996

F-3

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

December 31,
--------------------------
1995 1994
----------- -----------

Investment in shares of The Prudential Variable Contract
Real Property Partnership $86,101,883 $79,136,103
----------- -----------
----------- -----------

NET ASSETS, representing:
Equity of Contract owners $56,252,299 $51,545,161
Equity of The Prudential Insurance Company of America 29,849,584 27,590,942
----------- -----------
$86,101,883 $79,136,103
----------- -----------
----------- -----------

STATEMENTS OF OPERATIONS

Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

INVESTMENT INCOME:

Net Investment Income from Partnership Operations $ 6,651,513 $ 5,659,786 $ 5,289,403

EXPENSES:
Asset Based Charges to Contract owners (Note 3) 450,662 407,310 382,567
----------- ----------- -----------

NET INVESTMENT INCOME 6,200,851 5,252,476 4,906,836
----------- ----------- -----------

NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized loss on investments sold (Note 6) 0 (545,083) (1,029,669)
Net unrealized gain on investments 314,267 1,179,744 93,915
----------- ----------- -----------

NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS IN PARTNERSHIP 314,267 634,661 (935,754)
----------- ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,515,118 $ 5,887,137 $ 3,971,082
----------- ----------- -----------
----------- ----------- -----------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-6 THROUGH F-7.

F-4

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS

Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

OPERATIONS:

Net investment income $ 6,200,851 $ 5,252,476 $ 4,906,836

Net Realized and Unrealized
Gain/(Loss) on Investments in Partnership 314,267 634,661 (935,754)
----------- ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 6,515,118 5,887,137 3,971,082
----------- ----------- -----------

CAPITAL TRANSACTIONS:

Net Contributions by Contract owners 588,074 1,195,248 3,927

Net (Withdrawals)/Contributions by The Prudential
Insurance Company of America (137,412) (3,787,938) 378,640
----------- ----------- -----------

NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 450,662 (2,592,690) 382,567
----------- ----------- -----------

TOTAL INCREASE IN NET ASSETS $ 6,965,780 $ 3,294,447 $ 4,353,649

NET ASSETS:
Beginning of year $79,136,103 $75,841,656 $71,488,007
----------- ----------- -----------
End of year $86,101,883 $79,136,103 $75,841,656
----------- ----------- -----------
----------- ----------- -----------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-6 THROUGH F-7.

F-5

NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
For Years Ended December 31, 1995, 1994 and 1993

NOTE 1: GENERAL

The Prudential Variable Contract Real Property Account (the "Real Property
Account") was established on November 20, 1986 by resolution of the Board of
Directors of The Prudential Insurance Company of America ("The Prudential"), as
a separate investment account pursuant to New Jersey law. The assets of the
Real Property Account are segregated from The Prudential's other assets. The
Real Property Account is used to fund benefits under certain variable life
insurance and variable annuity contracts issued by The Prudential. On April 29,
1988, The Prudential contributed $100,000 to commence operations of the Real
Property Account.

The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership is a
general partnership organized under New Jersey law on April 29, 1988, through
agreement among The Prudential, Pruco Life Insurance Company, and Pruco Life
Insurance Company of New Jersey to provide a means for assets allocated to the
real property option under certain variable life insurance and variable annuity
contracts issued by the respective companies to be invested in a commingled
pool. On April 29, 1988, the Real Property Account initially contributed
$100,000 to the Partnership.

The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF ACCOUNTING

The financial statements are prepared on a current value basis due to
the fact that the unit values under Contracts participating in the
Partnership are determined using the current value basis of
investments (see General Note to the Partnership financials).

B. INVESTMENT IN PARTNERSHIP INTEREST

The investment in the Partnership is based on the Real Property
Account's proportionate interest of the Partnership's current value,
as discussed in Note 1 to the Partnership's financial statements. At
December 31, 1995 and 1994 the Real Property Account's interest in the
Partnership, based on current value equity was 45.4% or 5,465,515
shares and 44.6% or 5,465,515 shares, respectively.

C. INCOME RECOGNITION

The Real Property Account recognizes its proportionate share of the
Partnership's net investment income on a daily basis, as consistent
with the Partnership Agreement. The Net Gain/Loss on Investment in
Partnership reflected on the Statements of Operations represents the
Real Property Account's proportionate share of the Net Gain/(Loss) on
Investments recognized by the Partnership.

F-6

NOTE 3: ASSET BASED CHARGES

Mortality risk and expense risk charges and charges for administration are
applied daily against the net assets representing equity of Contract owners
investing in the Real Property Account, at an effective annual rate as shown
below for each of The Prudential's separate accounts investing in the Real
Property Account:

- --------------------------------------------------------------------------------
Variable Appreciable Account
- Contracts with face amounts of less than $100,000 0.90%
- Contracts with face amounts of $100,000 or more 0.60%
Individual Variable Contract Account 1.20%
- --------------------------------------------------------------------------------

NOTE 4: TAXES

Income and capital gains and losses of the Partnership are attributed, for
federal income tax purposes, to the Partners in the Partnership, including The
Prudential, in respect of the Real Property Account. The operations of the Real
Property Account form a part of, and are taxed with, the operations of The
Prudential. Under the Internal Revenue Code, all ordinary income and capital
gains allocated to the Contract owners are not taxable to The Prudential. As a
result, the net asset values of the Real Property Account are not affected by
federal income taxes on the ordinary income and capital gains and losses
attributable to the Real Property Account.

NOTE 5: COMMITMENT FROM PARTNER

On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire attractive
real property investments whose cost is greater than the Partnership's available
cash. Contributions to the Partnership under this commitment are utilized for
property acquisitions and returned to Prudential on an ongoing basis from
Contract owners' net contributions. Also, the amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of the
Partnership. The amount available under this commitment as of December 31, 1995
is approximately $52.2 million.

NOTE 6: NET REALIZED LOSS ON INVESTMENT

The Net Realized Loss on Investment reflected on the Statement of Operations
represents the Real Property Account's proportionate share of the loss realized
by the Partnership upon the sale of certain properties. For further
information, please refer to Note 8 of the Partnership's December 31, 1995
financial statements.

F-7

[Deloitte & Touche LLP letterhead]

INDEPENDENT AUDITORS' REPORT

To the Partners of
The Prudential Variable Contract Real Property Partnership
Newark, New Jersey

We have audited the accompanying statements of assets and liabilities including
the schedules of investments, of the Prudential Variable Contract Real Property
Partnership as of December 31, 1995 and 1994, and the related statements of
operations, changes in net assets, and cash flows for each of the three years in
the period ended December 31, 1995 (collectively referred to as the financial
statements). Our audit also included the financial statement schedules listed in
the index at Item 14. These financial statements and financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Prudential Variable Contract Real
Property Partnership as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

Investments in properties and interest in properties are stated at current value
at December 31, 1995 and 1994, as discussed in Note 1 to the financial
statements. Determination of current value involves subjective judgment because
the actual market value of real estate can be determined only by negotiation
between the parties in a sales transaction.

/s/ Deloitte & Touche LLP

March 1, 1996

F-8

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

STATEMENTS OF ASSETS AND LIABILITIES

December 31,
-------------------------------------
1995 1994
------------ ------------

ASSETS:

Properties at current value
(cost $191,981,608 and $154,157,068
respectively) (Note 1) $164,695,033 $126,258,004
Interest in properties at current value
(cost $6,133,157 and $6,108,742
respectively) (Note 1) 5,800,000 5,726,451
Cash and cash equivalents 14,223,265 33,093,237
Marketable securities 10,532,155 15,824,199
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $18,896 and $128,336 respectively) 1,743,305 2,218,095
------------ ------------

Total Assets $196,993,758 $183,119,986
------------ ------------
------------ ------------

LIABILITIES AND PARTNERS' EQUITY:

Obligation under capital lease (Note 2) $3,882,421 $3,804,836
Accounts payable and accrued expenses 2,142,614 805,066
Due to affiliates (Note 5) 682,795 624,206
Other liabilities 664,069 645,913
------------ ------------

Total liabilities 7,371,899 5,880,021
------------ ------------

Partners' Equity 189,621,859 177,239,965
------------ ------------

Total Liabilities and Partners' Equity $196,993,758 $183,119,986
------------ ------------
------------ ------------

Number of shares outstanding at end of period 12,036,684 12,241,034
------------ ------------
------------ ------------

Share Value at end of period $15.75 $14.48
------ ------
------ ------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.

F-9

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

STATEMENTS OF OPERATIONS

Year Ended December 31,
---------------------------------------------------
1995 1994 1993
----------- ----------- -----------

INVESTMENT INCOME:

Rent from properties $19,827,044 $16,344,259 $15,810,994
Income from interest in properties 638,183 2,355,204 2,901,477
Interest on mortgage loans 0 105,694 1,023,292
Interest from short-term investments 2,660,865 1,571,394 743,924
----------- ----------- -----------
23,126,092 20,376,551 20,479,687
----------- ----------- -----------

EXPENSES:

Investment management fee (Note 5) 2,341,878 2,287,816 2,269,206
Real estate tax expense 1,938,090 1,792,775 1,986,246
Administrative expenses 1,795,092 1,413,722 1,609,292
Operating expenses 1,870,183 1,707,039 1,639,828
Interest expense 460,578 327,000 320,484
----------- ----------- -----------
8,405,821 7,528,352 7,825,056
----------- ----------- -----------

NET INVESTMENT INCOME 14,720,271 12,848,199 12,654,631
----------- ----------- -----------

NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:

Net realized loss
on investments (Note 8) 0 (1,237,385) (2,463,431)
Net unrealized gain
on investments 661,623 2,576,828 223,714
----------- ----------- -----------

NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 661,623 1,339,443 (2,239,717)
----------- ----------- -----------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $15,381,894 $14,187,642 $10,414,914
----------- ----------- -----------
----------- ----------- -----------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.

F-10

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

STATEMENTS OF CHANGES IN NET ASSETS

Year Ended December 31,
---------------------------------------------------
1995 1994 1993
------------ ------------ ------------

OPERATIONS:

Net Investment Income $ 14,720,271 $ 12,848,199 $ 12,654,631
Net Realized and Unrealized
Gain/(Loss) on Investments 661,623 1,339,443 (2,239,717)
------------ ------------ ------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 15,381,894 14,187,642 10,414,914
------------ ------------ ------------

CAPITAL TRANSACTIONS:

Withdrawals by partners
( 204,350, 790,390, and 1,157,814
shares respectively) (3,000,000) (11,000,000) (15,000,000)
------------ ------------ ------------

NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (11,000,000) (15,000,000)
------------ ------------ ------------

TOTAL INCREASE/(DECREASE)
IN NET ASSETS 12,381,894 3,187,642 (4,585,086)

NET ASSETS:

Beginning of Period 177,239,965 174,052,323 178,637,409
------------ ------------ ------------
End of Period $189,621,859 $177,239,965 $174,052,323
------------ ------------ ------------
------------ ------------ ------------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.

F-11

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

STATEMENTS OF CASH FLOWS

Year Ended December 31,
----------------------------------------------------
1995 1994 1993
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 15,381,894 $ 14,187,642 $ 10,414,914
Adjustments to reconcile net increase/(decrease) in net assets
resulting from operations to net cash from
operating activities:
Net unrealized gain on investments (661,623) (2,576,828) (223,714)
Net realized loss on investments 0 1,237,385 2,463,431
Changes in assets and liabilities:
Decrease/(Increase) in other assets and accounts receivable 474,790 (727,821) 115,982
Decrease/(Increase) in marketable securities 5,292,044 (13,845,191) (1,979,008)
Increase in obligation under capital lease 77,585 6,271 5,743
Increase in accounts payable
and accrued expenses 1,337,548 75,876 99,524
Increase/ (Decrease) in due to affiliates 58,589 (70,438) (19,529)
Increase/(Decrease) in other liabilities 18,156 165,049 (9,006)
------------ ------------ ------------

Net cash from operating activities 21,978,983 (1,548,055) 10,868,337
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties (36,774,343) 0 0
Capital improvements on real estate owned (1,050,197) (1,161,224) (1,044,906)
Capital improvements on interest in properties (24,415) (12,087) (34,237)
Principal repayments received on mortgage loans 0 3,947,528 202,959
Proceeds from sale of investments 0 19,014,842 4,726,705
------------ ------------ ------------

Net cash from investing activities (37,848,955) 21,789,059 3,850,521
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Withdrawals by Partners (3,000,000) (11,000,000) (15,000,000)
------------ ------------ ------------

Net cash from financing activities (3,000,000) (11,000,000) (15,000,000)
------------ ------------ ------------

Net (decrease)/increase in cash and cash equivalents (18,869,972) 9,241,004 (281,142)

CASH AND CASH EQUIVALENTS - Beginning of year 33,093,237 23,852,233 24,133,375
------------ ------------ ------------

CASH AND CASH EQUIVALENTS - End of year $ 14,223,265 $ 33,093,237 $ 23,852,233
------------ ------------ ------------
------------ ------------ ------------

SUPPLEMENTAL SCHEDULE
OF NONCASH INVESTING ACTIVITIES:
Foreclosure on mortgage loan (Note 9) $ 0 $ 5,276,262 $ 0
------------ ------------ ------------
------------ ------------ ------------

SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 250,000 $ 250,000
------------ ------------ ------------
------------ ------------ ------------

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.

F-12

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

SCHEDULE OF INVESTMENTS

DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 86.9% 71.2%
Current Current
Location Description Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------

Azusa, CA Warehouse $ 18,546,247 $ 15,083,725 $ 18,219,245 $ 15,426,651
Lisle, IL Office Building 17,524,421 11,600,000 17,524,421 12,000,000
Atlanta, GA Garden Apartments 15,371,495 12,600,000 15,309,193 11,903,533
Pomona, CA (a) Warehouse 23,205,172 17,127,292 23,115,589 16,353,556
Roswell, GA Retail Shopping Center 31,688,912 32,055,216 31,605,970 32,500,000
Morristown, NJ Office Building 18,664,969 9,572,688 18,443,689 9,825,401
Bolingbrook, IL Warehouse 8,948,028 7,400,000 8,915,498 7,009,907
Farmington Hills, MI Garden Apartments 13,594,950 14,200,000 13,560,049 13,538,956
Flint, MI Office Building 7,616,842 6,539,368 7,463,414 7,700,000
Raleigh, NC Garden Apartments 15,758,699 17,200,000 0 0
Nashville, TN Office Building 8,431,680 8,686,551 0 0
Oakbrook Terrace, IL Office Complex 12,630,193 12,630,193 0 0
------------ ------------ ------------ ------------
$191,981,608 $164,695,033 $154,157,068 $126,258,004
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

(a) Includes land under capital lease of $3,412,636 representing the present
value of minimum future lease payments at the inception of the lease.

INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.1% 3.2%
Current Current
Location Description Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------

Jacksonville, FL Warehouse/Distribution 1,317,453 1,225,000 1,304,979 1,150,000
Jacksonville, FL Warehouse/Distribution 1,002,448 975,000 1,002,448 1,000,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,300,000 1,442,894 1,375,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,300,000 2,358,421 2,201,451
------------ ------------ ------------ ------------
$ 6,133,157 $ 5,800,000 $ 6,108,742 $ 5,726,451
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.5% 18.7%
(see pages F-14 and F-15 for detail) Face Current Face Current
Description Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Commercial Paper and Cash $ 14,282,697 $ 14,223,265 $ 33,456,969 $ 33,093,237
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.6% 8.9%
(see pages F-14 and F-15 for detail) Face Current Face Current
Description Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Marketable Securities $ 10,480,000 $ 10,532,155 $ 16,100,000 $ 15,824,199
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

OTHER ASSETS (3.1%) (2.0%)
(net of liabilities) $ (5,628,594) $ (3,661,926)
------------ ------------
------------ ------------

TOTAL NET ASSETS $189,621,859 $177,239,965
------------ ------------
------------ ------------

F-13

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

SCHEDULE OF INVESTMENTS

DECEMBER 31, 1995
--------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.5%
Face Current
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Commercial Paper (with stated rate and maturity date)

Morgan Stanley Group, Inc., 6.10%, January 2, 1996 $ 1,146,000 $ 1,146,000
Engelhard Corp., 6.25%, January 3, 1996 1,038,000 1,038,000
Finova Capital Corp., 5.95%, January 4, 1996 800,000 792,198
Philip Morris Companies Inc., 5.80%, January 5, 1996 505,000 504,430
Gannett Co. Inc., 5.85%, January 9, 1996 1,700,000 1,696,409
Hanson Finance, 5.80%, January 12, 1996 354,000 352,175

Riverwoods Funding Corp., 5.78%, January 12, 1996 1,189,000 1,183,273
Finova Capital Corp., 5.97%, January 16, 1996 780,000 771,980
Smith Barney Inc., 5.79%, January 18, 1996 1,628,000 1,618,836
Fleet Financial Group, 5.75%, January 30, 1996 1,700,000 1,689,139
Countrywide Funding Corp., 5.82%, February 14, 1996 1,500,000 1,488,128
----------- -----------

TOTAL COMMERCIAL PAPER 12,340,000 12,280,568

TOTAL CASH 1,942,697 1,942,697
----------- -----------

TOTAL CASH AND CASH EQUIVALENTS $14,282,697 $14,223,265
----------- -----------
----------- -----------

MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.6%
Face Current
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Commercial Paper (with stated rate and maturity date)

Associates Corp. of North America, 8.75%, February 1, 1996 $ 410,000 $ 416,810
General Motors Acceptance Corp., 8.75%, February 1, 1996 650,000 658,860
General Motors Acceptance Corp., 8.95%, February 5, 1996 350,000 356,370
General Motors Acceptance Corp., 4.75%, February 14, 1996 430,000 426,212
General Motors Acceptance Corp., 6.01%, February 22, 1996 240,000 240,057
Household Finance Corp., 5.75%, April 19, 1996 2,000,000 1,996,520
Ford Motor Credit Corp., 6.24%, April 22, 1996 500,000 500,658
Society National Bank Cleveland, 6.00%, April 25, 1996 150,000 149,295
International Lease Finance Corp., 5.00%, May 28, 1996 1,000,000 992,120
Transamerica Financial Corp., 8.55%, June 15, 1996 400,000 409,284
John Deere Capital Corp., 6.16%, July 22, 1996 1,000,000 1,002,267
Sears Roebuck Acceptance Corp., 8.55%, August 1, 1996 1,000,000 1,039,335
Key Bank of New York, N.A., 5.43%, September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.56%, September 12, 1996 1,000,000 999,297
Associates Corp. of North America, 4.48%, October 15, 1996 350,000 345,860
----------- -----------

Total Commercial Paper $10,480,000 $10,532,155
----------- -----------
----------- -----------

F-14

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

SCHEDULE OF INVESTMENTS

DECEMBER 31, 1995
--------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 18.7%
Face Current
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Commercial Paper (with stated rate and maturity date)

Chemical Bank, 6.25%, January 3, 1995 $ 90,000 $ 90,000
Amoco Corp., 5.754%, January 3, 1995 2,104,000 2,102,656
Pacificorp, 6.125%, January 12, 1995 2,000,000 1,991,867
Gateway Fuel Corp., 5.571%, January 17, 1995 1,925,000 1,900,590
Norwest Financial Inc., 5.499%, January 17, 1995 1,660,000 1,636,007
Greyhound Financial Corp., 6.215%, January 18, 1995 1,944,000 1,932,987
PHH Corp Note, 5.928%, January 19, 1995 2,400,000 2,388,593

Merrill Lynch & Company Inc., 6.056%, January 25, 1995 706,000 699,528
Associates Corp. of North Am., 5.828%, January 30, 1995 2,300,000 2,277,144
Duracell Inc., 6.310%, January 30, 1995 2,396,000 2,373,122
Ford Motor Credit Corp., 5.841%, February 1, 1995 2,300,000 2,275,997
Goldman Sachs Group, 5 .705%, February 2, 1995 1,685,000 1,654,071
Sears Roebuck Acceptance Corp., 6.120%, February 7, 1995 1,000,000 988,572

Morgan Stanley Group Inc., 6.363%, March 1, 1995 1,000,000 985,370
Beneficial Corp, 6.349%, March 14, 1995 2,400,000 2,362,500
John Deere Capital Corp., 6.349%, March 14, 1995 2,400,000 2,362,500
American General Financial Corp., 6.350%, March 15, 1995 2,400,000 2,362,084
Toronto Dominion Holdings, 6.318%, March 15, 1995 2,400,000 2,362,680
----------- -----------

TOTAL COMMERCIAL PAPER 33,110,000 32,746,268

TOTAL CASH 346,969 346,969
----------- -----------

TOTAL CASH AND CASH EQUIVALENTS $33,456,969 $33,093,237
----------- -----------
----------- -----------

MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 8.9%
Face Current
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------------------------------------------------------

Commercial Paper (with stated rate and maturity date)

Bankers Trust NY Corp, 5.250%, January 16, 1995 $ 1,400,000 $ 1,401,680
Republic National Bank of NY, 4.300%, March 8, 1995 1,000,000 998,546
Golden Peanut Co., 6.455%, April 5, 1995 2,000,000 1,958,218
General Electric Capital Corp, 6.592%, April 18, 1995 2,400,000 2,348,400
PNC Bank N.A., 5.820%, April 21, 1995 1,400,000 1,398,775

Nationsbank North Carolina, 5.400%, May 19, 1995 1,500,000 1,511,807
Corporate Receivables Corp., 6.760%, May 23, 1995 2,400,000 2,332,548
Province of Quebec, 6.887%, June 1, 1995 2,000,000 1,937,005
Bank of America NT & SA, 6.783%, June 5, 1995 2,000,000 1,937,220
----------- -----------

Total Commercial Paper $16,100,000 $15,824,199
----------- -----------
----------- -----------

F-15

NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Years Ended December 31, 1995, 1994, 1993

General

On April 29, 1988, The Prudential Variable Contract Real Property Partnership
(the "Partnership"), a general partnership organized under New Jersey law, was
formed through an agreement among The Prudential Insurance Company of America
("The Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership
was established as a means by which assets allocated to the real estate
investment option under certain variable life insurance and variable annuity
contracts issued by the respective companies could be invested in a commingled
pool. The partners in the Partnership are The Prudential Insurance Company of
America, Pruco Life Insurance Company and Pruco Life Insurance Company of New
Jersey.

The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.

The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Notes 1A and 1B below, plus an
estimate of net income from operations reduced by any liabilities of the
Partnership.

The periodic adjustments to property and mortgage loan values described in Notes
1A and 1B below and the corrections of previous estimates of net income are made
on a prospective basis. There can be no assurance that all such adjustments and
estimates will be made timely.

Shares of the Partnership are sold to The Prudential Variable Contract Real
Property Account, Pruco Life Variable Contract Real Property Account, and Pruco
Life of New Jersey Variable Contract Real Property Account, (the "Real Property
Accounts") at the current share value of the Partnership's net assets. Share
value is calculated by dividing the current value of net assets of the
Partnership as determined below by the number of shares outstanding. A Contract
owner participates in the Partnership through interests in the Real Property
Accounts.

Note 1: Summary Of Significant Accounting Policies

A: Real Estate Owned and Interest in Properties - The Partnership's
investments in real estate owned and interests in properties are
initially valued at their purchase price. Thereafter, current
values are based upon appraisal reports prepared by independent
real estate appraisers (members of the Appraisal Institute or an
equivalent organization) which are ordinarily obtained on an
annual basis. The real estate valuations are reviewed internally
at least every three months and adjusted if there has been any
significant changes and circumstances related to the real estate
since the most recent independent appraisal.

The Chief Appraiser of the Prudential Comptroller's Department
Valuation Unit (Valuation Unit) is responsible to assure that the
valuation process provides independent and accurate current value
estimates. In the interest of maintaining and monitoring the
independence and the accuracy of the appraisal process, the
Comptroller of The Prudential has appointed a third party firm to
act as the Appraisal Management Firm. The Appraisal Management
Firm, among other responsibilities, approves the selection and
scheduling of external appraisals; develops a standard package of
information to be supplied to the appraisers; reviews and
provides comments on all external appraisals and a sample of
internal appraisals; assists in developing policy and procedures
and assists in the evaluation of the performance and competency
of external appraisers. The real estate valuations are reviewed
quarterly by the Valuation Unit and adjusted if there has been
any significant changes related to the property since the most
recent independent appraisal.

F-16

The purpose of an appraisal is to estimate the current value of
real estate as of a specific date. Current value has been defined
as the most probable price for which the appraised real estate
will sell in a competitive market under all conditions requisite
to fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither
is under undue duress. This estimate of current value generally
is a correlation of three approaches, all of which require the
exercise of subjective judgement. The three approaches are: (1)
current cost of reproducing real estate less deterioration and
functional and economic obsolescence; (2) discounting of a series
of income streams and reversion at a specified yield or by
directly capitalizing a single - year income estimate by an
appropriate factor; and (3) value indicated by recent sales of
comparable real estate in the market. In the reconciliation of
these three approaches, the one most heavily relied upon is the
one generally recognized for the type of real estate in the
market.

B: Revenue Recognition - Rent from properties consists of all
amounts earned under tenant operating leases including base rent,
recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Revenue from
leases which provide for scheduled rent increases is recognized
as billed.

C: Cash Equivalents - The Partnership considers all highly liquid
investments with an original maturity of three months or less
when purchased to be cash equivalents. Cash equivalents are
carried at market value.

D: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at market value.

E: Federal Income Taxes - The Partnership is not a taxable entity
under the provisions of the Internal Revenue Code. The income
and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the
Partnership. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.

The bases of the Partnership's assets and liabilities for federal
income tax purposes are the same as the amounts reported on the
statements of assets and liabilities except for the investment in
properties. The tax basis of the properties is $193,288,982 at
December 31, 1995 and $148,001,027 at December 31, 1994.

F: Basis of Accounting - The financial statements are prepared on a
current value basis due to the fact that the unit values under
Contracts participating in the Partnership are determined using
the current value basis of investments (see General Note).

G: Management Use of Estimates in the Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.

Note 2: Obligation Under Capital Lease

The Partnership maintains an interest in a leasehold estate consisting of six
one-story industrial warehouse buildings located in Pomona, California. In
conjunction with this interest, the Partnership assumed assignment of a ground
lease agreement which expires in November 2078, with no renewal options. The
annual ground lease payments after November 1994, and for each 10 year increment
thereafter, are subject to increase 50% of the increase in the Consumer Price
Index during the previous period . In 1995, the annual ground lease payment
increased $126,450 to $376,450. The ground lease contains a purchase option
exercisable from November 1994 to November 1997 at a fixed price of $4,000,000.
The Partnership intends to exercise its option

F-17

to purchase the Ground Lease prior to its expiration. Future minimum ground
lease payments under capital lease at December 31, 1995 are as follows:

1996 $ 376,450
Thereafter 4,062,742
----------
Total minimum ground lease payments 4,439,192
Less amount representing interest 556,771
----------
Present value of minimum ground lease payments $3,882,421
----------
----------

Note 3: Investment In Mortgage Loans

At December 31, 1993, the Partnership had an investment in two mortgage loans
with a current value totaling $9,223,791 with interest rates of 8.875% and 9%.
Both loans were scheduled to mature in 1994. The Partnership received a final
payment in May 1994 of $3,543,892 which satisfied the terms of the loan on the
property in Lincoln, NE. On July 1, 1994, the Partnership foreclosed on the
Flint, MI mortgage loan under a voluntary conveyance of the property by the
mortgagor. The Partnership took title to the property at the expiration of the
redemption period on January 3, 1995. The property is reported as investment
in property in the December 31, 1995 financial statements and is carried at its
current value.

Note 4: Leasing Activity

The Partnership leases space to tenants under various operating lease
agreements. These agreements, without giving effect to renewal options, have
expiration dates ranging from 1995 to 2009. At December 31, 1995, future
minimum base rental income under non-cancelable operating leases by year, and in
the aggregate are shown below. Although these are non-cancelable leases, there
is no assurance that all amounts will be received.

Year Ending
December 31,
------------
1996 $14,170,889
1997 11,474,949
1998 8,926,646
1999 7,766,592
2000 6,837,373
Thereafter 19,199,780
-----------
Total $68,376,229
-----------
-----------

Note 5: Transactions with affiliates

Pursuant to an investment management agreement, The Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the years ended
December 31, 1995, 1994 and 1993 management fees incurred by the Partnership
were $2,341,878, $2,287,816, and $2,269,206, respectively.

The Partnership also reimburses The Prudential for certain administrative
services rendered by The Prudential. The amounts incurred for the years ended
December 31, 1995, 1994 and 1993 were $123,919; $95,015; and $119,467,
respectively and are classified as administrative expenses in the statements of
operations.

The Partnership owns a 50% interest in four warehouse/distribution buildings in
Jacksonville, Florida (the Unit warehouses) . The remaining 50% interest is
owned by The Prudential and one of its subsidiaries. At December 31, 1995 ,
these properties had total assets of $10,316,275 and liabilities of $33,802.
For the year ended December 31, 1995 the Unit warehouses had revenues of
$1,601,012 and expenses of $715,797.

F-18

The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential, to provide property management
services at the Unit warehouses, through August 1995 at the Bolingbrook, IL
warehouse, through October 1994 at the Atlanta, GA, Desoto, TX, Fort Worth, TX,
Shreveport, LA, Bedford Park, IL, and Normal, IL warehouses, and through August
1993 at the Pomona and Azuza warehouses. The property management fees earned by
PREMISYS for the years ended December 31, 1995, 1994, and 1993 were $31,360,
$92,382, and $89,684, respectively.

Note 6: Line Of Credit

The Partnership had established a $10 million annually renewable unsecured
revolving line of credit with First Fidelity Bank, N.A., which could have been
drawn upon as needed for potential liquidity needs. The annual cost of
maintaining the line of credit was 0.1875% of the total line of credit. Since
no drawdowns had occurred and management did not anticipate the need to draw
upon this resource in the future, the line of credit was discontinued as of
October 31, 1995.

Note 7: Commitment from Partner

On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire attractive
real property investments whose cost is greater than the Partnership's then
available cash. Contributions to the Partnership under this commitment are
utilized for property acquisitions and returned to Prudential on an ongoing
basis from Contract owners' net contributions. Also, the amount of the
commitment is reduced by $10 million for every $100 million in current value
net assets of the Partnership. The amount available under this commitment for
property purchases as of December 31, 1995 is approximately $52.2 million.

Note 8: Net Realized Loss on Investments

On October 7, 1994, the Partnership sold its 50% ownership interest in the two
warehouse/distribution buildings located in Atlanta, GA and the ones located in
Desoto, TX; Fort Worth, TX; Shreveport, LA; Bedford Park, IL; and Normal, IL.
The net proceeds on the sale were $19,014,872 resulting in a realized loss of
$1,237,385.

On August 9, 1993, the Partnership sold its Denver, Colorado warehouse facility.
The proceeds, net of related costs, amounted to approximately $2,561,000. The
sale of the warehouse resulted in a realized loss of approximately $1,451,000.

On September 2, 1993, the Partnership sold one of the Jacksonville, Florida
warehouse/distribution buildings in which the Partnership owned a 50% interest.
The proceeds, net of related costs, amounted to approximately $1,380,000,
resulting in a realized loss of approximately $220,000.

On October 29, 1993, the Partnership sold its interest in the Unit warehouse
located in Hightstown, New Jersey. The proceeds, net of related costs, were
approximately $786,000, resulting in a realized loss of approximately $792,000.

Note 9: Foreclosure on Mortgage Loan

On July 1, 1994, the Partnership foreclosed on the Flint, MI mortgage loan under
a voluntary conveyance of the property by the mortgagor. The Partnership took
title to the property at the expiration of the redemption period on January 2,
1995.

F-19

Note 10: Per Share Information (For a share outstanding throughout the year.)

01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
to to to to to
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91

Rent from properties $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899
Income from interest in properties $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791
Interest on mortgage loans $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663
Interest from short-term investments $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151
-------- -------- -------- -------- --------

INVESTMENT INCOME $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504
-------- -------- -------- -------- --------

Investment management fee $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669
Real estate tax expense $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168
Administrative expenses $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946
Operating expenses $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948
Interest expense $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193
-------- -------- -------- -------- --------
EXPENSES $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924
-------- -------- -------- -------- --------

NET INVESTMENT INCOME $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580
-------- -------- -------- -------- --------

Net realized loss on investments sold $(0.0000) $(0.0966) $(0.1816) $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on investments $ 0.0581 $ 0.2169 $ 0.0152 $(1.1359) $(0.7770)
-------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ 0.0581 $ 0.1203 $(0.1664) $(1.1359) $(0.7770)
-------- -------- -------- -------- --------

Net increase/(decrease) in share value $ 1.2745 $ 1.1228 $ 0.7668 $(0.2930) $ 0.0810

Share Value at beginning of period $14.4792 $13.3564 $12.5896 $12.8826 $12.8016
-------- -------- -------- -------- --------
Share Value at end of period $15.7537 $14.4792 $13.3564 $12.5896 $12.8826
-------- -------- -------- -------- --------

Ratio of expenses to average net assets 4.62% 4.27% 4.44% 4.47% 3.81%

Ratio of net investment income to
average net assets 8.08% 7.29% 7.17% 6.69% 6.63%

Number of shares outstanding at
end of period (000's) 12,037 12,241 13,031 14,189 14,993

ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE.
PER SHARE INFORMATION PRESENTED HEREIN IS SHOWN ON A BASIS CONSISTENT WITH THE
FINANCIAL STATEMENTS AS DISCUSSED IN NOTE 1G.

F-20

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 1995
----------------------------------------------------------

Initial Costs to Partnership Costs
------------------------------------------------------ Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
- -------------------------------------------------------------------------------------------------------------

Properties:

Warehouse
Azusa, CA None $ 6,638,694 $ 10,741,233 $1,166,320 (b)

Office Building
Lisle, IL None 1,780,000 15,743,881 540

Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 571,379 (e)

Warehouse
Pomona, CA None 3,412,636 (d) 19,091,210 701,326

Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 720,613

Office Building
Morristown, NJ None 2,868,660 12,958,451 2,837,858

Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 272,311

Garden Apartments
Farmington Hills, MI None 1,550,000 11,744,571 300,379

Office Park
Flint, MI None 1,119,512 6,343,902 153,428

Garden Apartments
Raleigh, NC None 1,623,146 14,135,553 0

Office Building
Williamson County, TN None 1,797,000 6,588,451 46,229

Office Park
Oakbrook Terrace, IL None 1,313,310 11,316,883 0
---- ----------- ------------ ----------
$0 $36,561,991 $148,649,234 $6,770,383
---- ----------- ------------ ----------
---- ----------- ------------ ----------

Gross Amount at Which
Carried at Close of Period
-------------------------------------------------------------------------------------------
Buildings & Year of Date
Description Land Improvements Total (a)(b)(c) Construction Acquired
- ----------------------------------------------------------------------------------------------------------------------------------

Properties:

Warehouse
Azusa, CA $ 6,478,884 $ 12,067,363 $ 18,546,247 1986 Apr., 1988

Office Building
Lisle, IL 1,780,000 15,744,421 17,524,421 1985 Sep., 1987

Garden Apartments
Atlanta, GA 3,631,212 11,740,283 15,371,495 1987 Oct., 1987

Warehouse
Pomona, CA 3,412,636 19,792,536 23,205,172 1984 Apr., 1988

Retail Shopping Center
Roswell, GA 9,462,951 22,225,961 31,688,912 1988 Jan., 1989

Office Building
Morristown, NJ 2,868,660 15,796,309 18,664,969 1981 Aug., 1988

Office/Warehouse
Bolingbrook, IL 1,373,199 7,574,829 8,948,028 1989 Feb., 1990

Garden Apartments
Farmington Hills, MI 1,583,320 12,011,630 13,594,950 1988 Jan., 1990

Office Park
Flint, MI 1,119,512 6,497,330 7,616,842 1986 Jan., 1995

Garden Apartments
Raleigh, NC 1,623,146 14,135,553 15,758,699 1995 June, 1995

Office Building
Williamson County, TN 1,797,000 6,634,680 8,431,680 1982 Oct., 1995

Office Park
Oakbrook Terrace, IL 1,313,310 11,316,883 12,630,193 1988 Dec., 1995
----------- ------------ ------------
$36,443,830 $155,537,778 $191,981,608
----------- ------------ ------------
----------- ------------ ------------

(a) Balance at December 31, 1994,
1993, 1992, respectively $154,157,068 $145,532,430 $148,499,390
Additions:
Acquisition 36,774,343 7,463,414 0
Improvements, etc. 1,050,197 1,161,224 1,044,906
----------- ------------ ------------
Deletions:
Sale 0 0 (4,011,866)
----------- ------------ ------------
Balance at December 31, 1995,
1994, 1993, respectively $191,981,608 $154,157,068 $145,532,430
----------- ------------ ------------
----------- ------------ ------------

(b) Net of payments received from seller under guarantees of occupancy rates and operating income of $(421,663).

(c) Balance of real estate owned on a tax basis at December 31, 1995 is $193,288,982.

(d) Represents land under capital lease.

(e) Net of $1,000,000 settlement received from lawsuit.

F-21

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES
DECEMBER 31, 1995
-------------------------------------------------------------

Initial Costs to Partnership
------------------------------------------------------
Buildings &
Description Encumbrances Land Improvements
- --------------------------------------------------------------------------------------

Interest in Properties:

Warehouse/Distribution
Jacksonville, FL None $231,119 $1,073,849

Warehouse/Distribution
Jacksonville, FL None 176,256 818,935

Warehouse/Distribution
Jacksonville, FL None 255,545 1,187,335

Warehouse/Distribution
Jacksonville, FL None 415,548 1,930,761
---- ---------- ----------
$0 $1,078,468 $5,010,880
---- ---------- ----------
---- ---------- ----------

Gross Amount at Which
Costs Carried at Close of Period
Capitalized ----------------------------------------------------------------------------
Subsequent to Buildings & Year of Date
Description Acquisition Land Improvements Total (a)(b) Construction Acquired
- ----------------------------------------------------------------------------------------------------------------------------------

Interest in Properties:

Warehouse/Distribution
Jacksonville, FL $12,485 $231,119 $1,086,334 $1,317,453 1988 Jan., 1990

Warehouse/Distribution
Jacksonville, FL 7,257 176,256 826,192 1,002,448 1986 Jan., 1990

Warehouse/Distribution
Jacksonville, FL 14 255,545 1,187,349 1,442,894 1982 Jan., 1990

Warehouse/Distribution
Jacksonville, FL 24,053 415,548 1,954,814 2,370,362 1979 Jan., 1990
---------- ------------ ------------ ----------
$ 43,809 $ 1,078,468 $ 5,054,689 $6,133,157
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------

(a) Balance at December 31, 1994,
1993, 1992, respectively $6,108,742 $ 26,348,882 $29,492,913
Additions:
Improvements 24,415 12,087 34,237
Deletions:
Sales (20,252,227) (3,178,268)
---------- ------------ -----------

Balance at December 31, 1995,
1994, 1993, respectively $6,133,157 $ 6,108,742 $26,348,882
---------- ------------ -----------
---------- ------------ -----------

(b) Balance of real estate owned on a tax basis at December 31, 1995 is $6,133,157.

F-22